U.S. oil output best in 48 years
Nation could pass Russians, Saudis by end of 2019
U.S. oil production, led by record output in Texas, averaged more than 10 million barrels a day for the first time since 1970 as oil prices rose, drillers became more efficient, and export markets grew.
The Energy Department said Thursday that average crude production reached 10.038 million barrels a day in November, just below the record of 10.044 million barrels a day set in November 1970. Energy Department and industry experts expect that record to fall soon; they also expect the United States to overtake Russia and Saudi Arabia as the world’s biggest oil producer by the end of next year when U.S. output is forecast to hit 11 million barrels a day.
“American crude oil is a game-changer in international trade, global politics and domestic energy security,” said Todd Staples, president of the Texas Oil & Gas Association, a trade group. “Crude oil imports are down 20 percent from 2006 and, today, we are competing with the Middle East in the export market. These outcomes were unthinkable a decade ago”
The surge in production is another milestone in the so-called shale revolution
that opened vast reserves of oil and gas that were once trapped in shale rock formations. Just over half of U.S. crude comes from shale fields that include the Permian Basin in West Texas and he Eagle Ford shale in the South Texas.
Texas’ November production of 3.9 million barrels a day accounted for nearly 40 percent of U.S. output. The Permian Basin alone accounted for about one-fourth of the nation’s oil production.
After a two-year oil bust that hit bottom in 2016, U.S. production has increased as prices slowly recovered and oil companies adopted better technologies and techniques make profits at lower prices. U.S. oil prices are hovering near $66 a barrel, well below the 2014 peak of $107 a barrel, but more than $20 a barrel above the $42 in mid-2017.
That combination of price and efficiency allowed oil to flow faster than anticipated, said Andy Lipow, president of Lipow Oil Associates in Houston. “The higher prices are encouraging the shale oil producers,” Lipow said. “They’re looking at these values and asking, ‘How much more can we get out of the ground?’”
The growth is good news for Houston’s energy-centric economy, which suffered mightily during the oil bust. Energy companies are again reporting solid profits and hiring workers. In other words, Lipow said, so expect Houston traffic to keep getting worse.
While there are fears that U.S. production is growing too quickly and could undermine oil prices by creating a new glut, global oil inventories are still down. That’s in part because of geopolitical turmoil in countries like Venezuela where output is plummeting, as well as the ongoing accord between the Organization of the Petroleum Exporting Countries — led by Saudi Arabia — and Russia to maintain production cuts of 1.8 million barrels a day through 2018.
U.S. crude, meanwhile, is flowing into global markets. America’s decadesold crude export ban was lifted in late 2015 by Congress and the country is now shipping out about 1.7 million barrels a day to foreign markets, more than triple the 500,000 barrels exported at the end of 2016.
The export boom is another manifestation of the transformation unleashed by hydraulic fracturing, or fracking, which shatters shale rock to unlock oil, and horizontal drilling, which cuts across shale formations to tap into multiple reservoirs of oil and gas. As recently as 2011, the nation only produced about 5.5 million barrels a day.
American production isn’t only expanding in onshore shale. Offshore oil projects authorized well before the oil bust began in 2014 are producing more oil from the deepwater Gulf of Mexico. Gulf oil production rose to about 1.7 million barrels in November and it’s projected to hit a record of 1.9 million barrels per day this year.
In addition, Chevron, Royal Dutch Shell and French energy giant Total all announced new Gulf discoveries just this week.
The Wall Street investment bank Goldman Sachs predicts that oil prices will keep climbing over the next six months, arguing that the oil glut has been drained. Goldman predicts that prices for the international benchmark Brent crude, now trading at about $70 a barrel, will increase to $82.50 in six months. That translates to at least $75 a barrel for the U.S. oil benchmark, West Texas Intermediate.
As a result, U.S. consumers should expect higher gasoline prices. Gas prices are at their highest in months and expected to rise further.
The average cost of a gallon of regular unleaded in the Houston area increased to $2.28, up 20 cents from a year ago, while the national average rose to $2.57 a gallon, up 31 cents over the year, according to Gas Buddy, which tracks fuel prices nationwide.